I'm actually curious about this. You can refund without having an original charge. This is exactly how Square's new payment system is working. This is simply because a refund is not canceling the original withdrawal, rather it's depositing the original transaction amount back. I'm not quite sure how a credit card company could determine the exact transaction link (other than just comparing merchant and transaction amounts). Maybe they just deduct the base points rate on the deposited amount. I then wonder how they would handle if I bought a TV during a promotion for a bonus 3% points and then returned it.

However, I wonder what would happen if I were to send money from my actual credit card to my Google Wallet (with no fees until Jan 6th, unless extended), and then use the Google Wallet card to use Square to send the money back to my bank account using my debit card. If I wanted to slow the process I could use a bank transfer from Google wallet. Of course there are daily/weekly limits for both of these but it's a method I think would work.

People are gaming the system. They are just smart enough not to brag about it.